What's the True Cost of An Employee?

Employers, how do you conceptualize employee cost? Salary’s the biggest chunk, right?

Maybe. But maybe not. Salary is just one part of employee compensation. And compensation isn’t the only cost of hiring someone.

A lot of things drive up the cost of adding a new employee: benefits, logistical costs, and some perhaps - surprising kinds of taxation and fiscal policy. The effects of these costs go way beyond the workplace—they can shape the financial stability of all North Carolinians. If a business can’t afford to hire, it can’t afford to grow. And neither can our economy.

So what's really going on here? Let's dive in.

WiFi, Cars, and the Headaches of HR

Employees take up time, space, and resources. They need tools to do their jobs — tools like an office and desk space, WiFi, network access, a mechanic's bay, name badges, or company laptops. It costs time and money to get those balls rolling—thousands of dollars in many cases.

Then there’s everyone’s favorite subject: insurance. Health insurance, sure, but we’ll get to that later. What about everything else?

You need a business owner’s insurance policy (BOP) to cover lots of things: damages from fire, liability for bodily injuries, the cost of defense from libel. Then there’s vehicle insurance, which is its own hornet’s nest. It’s based on the type of business, the driving records of all employees and the value of the vehicles involved. You may think of vehicle insurance as mostly transportation companies’ problem, but it’s much more; mechanics give their customers rides to work, florists deliver, on and on. Cost, cost, cost.

Or how about the sneaky cost of human resources? Someone has to balance the books, file employment paperwork, cut checks, and perform the other behind-the-scenes tasks that make employment possible. HR coordinators usually handle all this, and fun fact: they don’t come cheap. If you're running a startup, however, you're probably just working late to cover that base. Either way, it's costing you time and money.

But hey. Maybe there'll be cake in the break room on your birthday, right?

Just add it to the bill.

Death and Taxes

Taxes are a whole ‘nother set of fiscal concerns associated with keeping employees on the payroll. For example, did you know “payroll tax” is a thing?

Payroll tax covers Social Security, Medicare, and unemployment insurance. It's pegged as a percentage of your income, so the hard numbers vary. In North Carolina, the employer contribution for the unemployment insurance portion ALONE can run as high as 6.912%. Add in the other costs discussed (social security and Medicare taxes come to 4.4% (Source 1)), and you’re looking at a substantial chunk of change for every single employee you have around.

Payroll taxes get a lot of pub (read: hate or love, depending on your political leanings). But there’s another cost of employment getting silenced by the squeaky wheel. One whose costs have a serious impact on our state's economy. One we promised we’d get to later...

Let's Talk Healthcare Costs

The cost of healthcare has been the subject of debate, discussion, and arguments at Christmas dinners-gone-wrong for years. From the introduction of the Affordable Care Act to the present, few fiscal or social topics have been so polarizing. So let's take a step back and look at the numbers: how does healthcare contribute to the true cost of employing someone?

In 2014, North Carolina employers contributed around $4,442 per single employee — up nearly 7% from the previous year. This, needless to say, adds to the overall cost of bringing your smiling face into the office every day. North Carolinians have seen their health insurance premiums increase by well over 20% once everything's taken into account. Depending on the plan and level of coverage, you may have seen an increase as high as 45%.

This affects us all. There are too many employers who can't afford to expand with new hires. Understanding the hidden costs of employing someone can help you make sense of the issues we face as a state — and in your own bank account. In other words, this matters. A lot.